John Bogle’s formula says 1% real stock returns likely over next decade

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gmaynardkrebs
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Mon Oct 14, 2019 6:59 am

HomerJ wrote:
Sun Oct 13, 2019 11:51 pm
ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant' :-) :-)

Image

It looks like a fairly useful correlation to me...
Why don't you actually look at the numbers on that chart.

Look at 1929 or the entire 1960s... CAPE was above 20, real returns were 0% or negative.

Now look at all the years past 1992, when CAPE crossed 20 and basically stayed above 20 for the past 27 years (except for brief dip in 2009).

CAPE has been ridiculously high for 27 years. And yet 15-year returns are shown to have been in the 3%-9% real range (historical average is 7%). 10-year returns have been even better (I'm wondering why 15-year returns were chosen for this chart).

CAPE has not done a good job predicting returns since it was discovered.

All the data points before 1988 were used to DERIVE the model. Right after CAPE was formulated, it went to a very high historical level, and basically has stayed there ever since (yet returns have stayed around the historical average).

Anyone actually watching CAPE seriously would have gotten out of the market in 1992, expecting 0% or 1% real, and missed out on the entire 90s bull market.

It's failed as a market-timing tool. And it doesn't seem to model reality very well anymore...

Here's a good article on it...

http://www.philosophicaleconomics.com/2013/12/shiller/
For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above. (Note - this was written in 2013 - it's 99% now)

The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value”.

If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
CAPE10's "failure," if that's what it is, is fair game, but the question is, what now? I still can't invest on the basis that "valuations don't matter." Is that what you are suggesting? Is there a better tool? Any tool? Yeah, I know that "stay the course" is a mantra here, but seriously, it's not some sort of magical talisman.

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nedsaid
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by nedsaid » Mon Oct 14, 2019 9:59 am

gmaynardkrebs wrote:
Mon Oct 14, 2019 6:59 am
HomerJ wrote:
Sun Oct 13, 2019 11:51 pm
ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant' :-) :-)

Image

It looks like a fairly useful correlation to me...
Why don't you actually look at the numbers on that chart.

Look at 1929 or the entire 1960s... CAPE was above 20, real returns were 0% or negative.

Now look at all the years past 1992, when CAPE crossed 20 and basically stayed above 20 for the past 27 years (except for brief dip in 2009).

CAPE has been ridiculously high for 27 years. And yet 15-year returns are shown to have been in the 3%-9% real range (historical average is 7%). 10-year returns have been even better (I'm wondering why 15-year returns were chosen for this chart).

CAPE has not done a good job predicting returns since it was discovered.

All the data points before 1988 were used to DERIVE the model. Right after CAPE was formulated, it went to a very high historical level, and basically has stayed there ever since (yet returns have stayed around the historical average).

Anyone actually watching CAPE seriously would have gotten out of the market in 1992, expecting 0% or 1% real, and missed out on the entire 90s bull market.

It's failed as a market-timing tool. And it doesn't seem to model reality very well anymore...

Here's a good article on it...

http://www.philosophicaleconomics.com/2013/12/shiller/
For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above. (Note - this was written in 2013 - it's 99% now)

The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value”.

If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
CAPE10's "failure," if that's what it is, is fair game, but the question is, what now? I still can't invest on the basis that "valuations don't matter." Is that what you are suggesting? Is there a better tool? Any tool? Yeah, I know that "stay the course" is a mantra here, but seriously, it's not some sort of magical talisman.
I don't know, maybe pair your US Total Stock Market Index with a Small-Cap Value Index? Maybe diversify Internationally as foreign stocks are cheaper than US Stocks? Maybe diversification across factors?

On the CAPE10 issue, I am somewhat in the middle. The metric is telling us something but I am of the opinion that the US Stock Market is not as expensive as perceived. Again, something is happening out there that the accountants are not capturing, value is being created that is not reflected in earnings. Not saying U.S. Stocks are cheap here, they are not, but this is not the High Tech and Internet mania of the late 1990's either. Another factor are very low interest rates which tend to push P/E ratios up.
A fool and his money are good for business.

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gmaynardkrebs
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Mon Oct 14, 2019 10:28 am

nedsaid wrote:
Mon Oct 14, 2019 9:59 am
On the CAPE10 issue, I am somewhat in the middle. The metric is telling us something but I am of the opinion that the US Stock Market is not as expensive as perceived. Again, something is happening out there that the accountants are not capturing, value is being created that is not reflected in earnings. Not saying U.S. Stocks are cheap here, they are not, but this is not the High Tech and Internet mania of the late 1990's either. Another factor are very low interest rates which tend to push P/E ratios up.
I think I'm of the same mind, but it's an uncomfortable feeling, as I'm sure many of us here feel. Is it all too good to be true? I don't know! But, what nags at me is the low interest rates. To me, they are bearish signal, but the stock market seems to love them. Sure, I get the Gordon equation, but low rates also signal low growth, which is hard to reconcile with the bullish case.

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HomerJ
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by HomerJ » Mon Oct 14, 2019 10:30 am

gmaynardkrebs wrote:
Mon Oct 14, 2019 6:59 am
CAPE10's "failure," if that's what it is, is fair game, but the question is, what now? I still can't invest on the basis that "valuations don't matter." Is that what you are suggesting? Is there a better tool? Any tool? Yeah, I know that "stay the course" is a mantra here, but seriously, it's not some sort of magical talisman.
Valuations do not matter.

IF... you assume low returns all the time.

That's the best way to invest, in my opinion.

Just like we assume low returns in retirement to be safe, assume low returns in accumulation, to be safe.

Save a good amount, assuming you're going to get something like 2%-3% real over the long run.

You'll probably be pleasantly surprised (just like most of us who plan to pull 4% in retirement will end up pleasantly surprised), and then you can adjust your savings/spending/retirement date, AFTER the money comes in.

We CANNOT predict future returns.

Assume low returns (positive real return is the only assumption I make). If we get average to good returns, great, you get to retire at 55 instead of 60. If we get low returns, you were already prepared for that.

It's like always carrying an umbrella around. If someone runs in and says "Oh my gosh, the chance of rain is higher today than yesterday!", you can say "Oh, good thing I already have my umbrella".

One could even start to say "Rain forecasts don't matter"

That's why I say valuations don't matter. Because my plan already is built around an expectation of low returns. If someone runs in and says "Oh my gosh, the chance of low returns is higher today than yesterday!", I can say "Oh, good thing I was already planning around low returns, and I don't have to change a thing".

And so I'm technically correct when I say "Valuations don't matter". Because I don't have to make any changes based on them.
The J stands for Jay

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by JoMoney » Mon Oct 14, 2019 10:51 am

:confused :? Does anyone else see a paradox in the idea of a broad-market index investor believing that
(A) Can't better value individual companies securities better than the broad market
and at the same time
(B) Can better value ALL the individual companies securities lumped together

Eventually, like a broken clock, the CAPE metric will line up with a market decline... but I've been hearing people complain about how high it was for almost 10 years now, and it's worked out pretty well ignoring them. Nobody knows how far down the market might retrace in any future down-turn, but one thing that is certain, is the market participants in aggregate won't be able to beat themselves in a race to beat each other out and then back in hoping to garner something extra from their efforts. In the mean time, the people averaging in or rebalancing over time will have averaged in at the average price over that time period of ups and downs.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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gmaynardkrebs
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Mon Oct 14, 2019 11:13 am

HomerJ wrote:
Mon Oct 14, 2019 10:30 am
gmaynardkrebs wrote:
Mon Oct 14, 2019 6:59 am
CAPE10's "failure," if that's what it is, is fair game, but the question is, what now? I still can't invest on the basis that "valuations don't matter." Is that what you are suggesting? Is there a better tool? Any tool? Yeah, I know that "stay the course" is a mantra here, but seriously, it's not some sort of magical talisman.
Valuations do not matter.

IF... you assume low returns all the time.

That's the best way to invest, in my opinion.

Just like we assume low returns in retirement to be safe, assume low returns in accumulation, to be safe.

Save a good amount, assuming you're going to get something like 2%-3% real over the long run.

You'll probably be pleasantly surprised (just like most of us who plan to pull 4% in retirement will end up pleasantly surprised), and then you can adjust your savings/spending/retirement date, AFTER the money comes in.

We CANNOT predict future returns.

Assume low returns (positive real return is the only assumption I make). If we get average to good returns, great, you get to retire at 55 instead of 60. If we get low returns, you were already prepared for that.

It's like always carrying an umbrella around. If someone runs in and says "Oh my gosh, the chance of rain is higher today than yesterday!", you can say "Oh, good thing I already have my umbrella".

One could even start to say "Rain forecasts don't matter"

That's why I say valuations don't matter. Because my plan already is built around an expectation of low returns. If someone runs in and says "Oh my gosh, the chance of low returns is higher today than yesterday!", I can say "Oh, good thing I was already planning around low returns, and I don't have to change a thing".

And so I'm technically correct when I say "Valuations don't matter". Because I don't have to make any changes based on them.
Seems pretty reasonable to me overall, but I'm less sure about the assumption of even low positive real returns. Even nominal returns on many bonds have now gone negative. Bonds and stocks are part of the same investment universe, and do trade as substitutes. Personally, and especially if I were in my accumulation years, I would assume no higher than zero for equities at this point, and save accordingly.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by BH_RedRan » Mon Oct 14, 2019 9:40 pm

I have read this thread with great interest and am now convinced I know for certain what will happen with the market in the next eight years. I will be pleased to tell you about my prediction eight years from now. :mrgreen:

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nedsaid
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by nedsaid » Tue Oct 15, 2019 8:17 am

gmaynardkrebs wrote:
Mon Oct 14, 2019 10:28 am
nedsaid wrote:
Mon Oct 14, 2019 9:59 am
On the CAPE10 issue, I am somewhat in the middle. The metric is telling us something but I am of the opinion that the US Stock Market is not as expensive as perceived. Again, something is happening out there that the accountants are not capturing, value is being created that is not reflected in earnings. Not saying U.S. Stocks are cheap here, they are not, but this is not the High Tech and Internet mania of the late 1990's either. Another factor are very low interest rates which tend to push P/E ratios up.
I think I'm of the same mind, but it's an uncomfortable feeling, as I'm sure many of us here feel. Is it all too good to be true? I don't know! But, what nags at me is the low interest rates. To me, they are bearish signal, but the stock market seems to love them. Sure, I get the Gordon equation, but low rates also signal low growth, which is hard to reconcile with the bullish case.
We are in a world of easy money, the central banks are trying to keep the world economy out of recession, lots of the stuff sloshing around to prop up asset prices. It seems a bit like pushing on a string, for some reason we are not seeing a particularly robust economy, we couldn't sustain 3%+ economic growth and it seems 2%+ is more like it in the face of stimulative monetary and fiscal policy. One possible culprit are very strict lending standards being imposed upon the banks, another one is falling birth rates. It seems like one foot is on the gas pedal and the other on the brake.
A fool and his money are good for business.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by dharrythomas » Tue Oct 15, 2019 8:38 am

If you don’t like what John Bogle and the CAPE are telling you, Vanguard is projecting nominal returns of 3.5-5.5% for US stocks over the next ten years. I’ve been wrong for too long about the level of interest rates to take what I think about the future too seriously.

What history generally tells us is that when prices are higher, returns going forward are lower either from a bear market or stagnation.

For those of us putting money in from our paycheck, a little at a time, it is hard to action. What it does drive is planning numbers. How much do I need to save? When can I retire? What is the SWR? All are heavily dependent on a number that is a SWAG.

Flexibility and resilience in the face of an unknowable future are critical. One key to satisfaction in life is low expectations. If things turn out better than expected celebrate. Currently, my crystal ball is cloudy.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Tue Oct 15, 2019 8:56 am

dharrythomas wrote:
Tue Oct 15, 2019 8:38 am
If you don’t like what John Bogle and the CAPE are telling you, Vanguard is projecting nominal returns of 3.5-5.5% for US stocks over the next ten years. I’ve been wrong for too long about the level of interest rates to take what I think about the future too seriously.

What history generally tells us is that when prices are higher, returns going forward are lower either from a bear market or stagnation.

For those of us putting money in from our paycheck, a little at a time, it is hard to action. What it does drive is planning numbers. How much do I need to save? When can I retire? What is the SWR? All are heavily dependent on a number that is a SWAG.

Flexibility and resilience in the face of an unknowable future are critical. One key to satisfaction in life is low expectations. If things turn out better than expected celebrate. Currently, my crystal ball is cloudy.
I agree. I think the only answer is to save more, which is tough when you've got kids, a mortgage, and are already working two jobs, as many people are. I've been reading that cities with lower housing costs are becoming more and more popular, which makes a lot of sense.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by PluckyDucky » Tue Oct 15, 2019 9:28 am

HomerJ wrote:
Sun Oct 13, 2019 11:51 pm
ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant' :-) :-)

Image

It looks like a fairly useful correlation to me...
Why don't you actually look at the numbers on that chart.

Look at 1929 or the entire 1960s... CAPE was above 20, real returns were 0% or negative.

Now look at all the years past 1992, when CAPE crossed 20 and basically stayed above 20 for the past 27 years (except for brief dip in 2009).

CAPE has been ridiculously high for 27 years. And yet 15-year returns are shown to have been in the 3%-9% real range (historical average is 7%). 10-year returns have been even better (I'm wondering why 15-year returns were chosen for this chart).

CAPE has not done a good job predicting returns since it was discovered.

All the data points before 1988 were used to DERIVE the model. Right after CAPE was formulated, it went to a very high historical level, and basically has stayed there ever since (yet returns have stayed around the historical average).

Anyone actually watching CAPE seriously would have gotten out of the market in 1992, expecting 0% or 1% real, and missed out on the entire 90s bull market.

It's failed as a market-timing tool. And it doesn't seem to model reality very well anymore...

Here's a good article on it...

http://www.philosophicaleconomics.com/2013/12/shiller/
For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above. (Note - this was written in 2013 - it's 99% now)

The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value”.

If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
From 1955 - 1974, it stayed above the line too. Extended periods above or below the line aren't unheard of. It doesn't help the predictive power too much though.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by usagi » Thu Oct 17, 2019 4:27 am

Bacchus01 wrote:
Thu Oct 10, 2019 5:39 am
Ridiculous compensation? So, if the CEO and BOD deliver above market total shareholder returns, aren’t they entitled to their “ridiculous compensation?”
Correct. Correlation is not causation. In general, they take advantage of the ignorance of shareholders by conflating the two. In many ways it is analogous to the reasons we index and the "discovery" of factors.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by SovereignInvestor » Thu Oct 17, 2019 8:03 am

HomerJ wrote:
Sun Oct 13, 2019 11:51 pm
ukbogler wrote:
Thu Oct 10, 2019 2:20 am
I'm loving all the people banging on about chi squared tests and how 'CAPE is unimportant' :-) :-)

Image

It looks like a fairly useful correlation to me...
Why don't you actually look at the numbers on that chart.

Look at 1929 or the entire 1960s... CAPE was above 20, real returns were 0% or negative.

Now look at all the years past 1992, when CAPE crossed 20 and basically stayed above 20 for the past 27 years (except for brief dip in 2009).

CAPE has been ridiculously high for 27 years. And yet 15-year returns are shown to have been in the 3%-9% real range (historical average is 7%). 10-year returns have been even better (I'm wondering why 15-year returns were chosen for this chart).

CAPE has not done a good job predicting returns since it was discovered.

All the data points before 1988 were used to DERIVE the model. Right after CAPE was formulated, it went to a very high historical level, and basically has stayed there ever since (yet returns have stayed around the historical average).

Anyone actually watching CAPE seriously would have gotten out of the market in 1992, expecting 0% or 1% real, and missed out on the entire 90s bull market.

It's failed as a market-timing tool. And it doesn't seem to model reality very well anymore...

Here's a good article on it...

http://www.philosophicaleconomics.com/2013/12/shiller/
For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above. (Note - this was written in 2013 - it's 99% now)

The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value”.

If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
Homer exactly. It's because the indicator is biased high IMO 30-35% or more now versus historically really pre 1990s. So in 2009 when it showed the crash low was barely fair value it really was well below fair value.

Buybacks and CPI changes make the data not comparable across decades. Buybacks allow EPS to grow much faster than inflation and CAPE only adjusts for inflation via CPI.

Post 2000 period has massive buybacks and the 10 years ago EPS in current day would often be double or triple due to share count reductions but back pre 1990s without buybacks EPS didn't grow as fast.

Many seem to notice CAPE's poor predictive power recently and it overstating valuations and understating projected returns and these are the reasons. I wrote about them for years and only 2 years ago Shiller conceded buybacks are an issue when he added a field for total return proxy to his spreadsheet but IMO this doesn't fix the issue.

There should be another adjustment for buybacks that increases older 10 year EPS in this he average 10 year ES calculation used in denominator of CAPE.

Also the CPI adjustments are low post 1995 when it was changed.

There is a new issue post 2017 with the tax rate being lower so pro forma EPS would be higher.


https://seekingalpha.com/article/408638 ... d-buybacks

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CyclingDuo
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by CyclingDuo » Fri Oct 18, 2019 7:44 am

gmaynardkrebs wrote:
Tue Oct 15, 2019 8:56 am
dharrythomas wrote:
Tue Oct 15, 2019 8:38 am
If you don’t like what John Bogle and the CAPE are telling you, Vanguard is projecting nominal returns of 3.5-5.5% for US stocks over the next ten years. I’ve been wrong for too long about the level of interest rates to take what I think about the future too seriously.

What history generally tells us is that when prices are higher, returns going forward are lower either from a bear market or stagnation.

For those of us putting money in from our paycheck, a little at a time, it is hard to action. What it does drive is planning numbers. How much do I need to save? When can I retire? What is the SWR? All are heavily dependent on a number that is a SWAG.

Flexibility and resilience in the face of an unknowable future are critical. One key to satisfaction in life is low expectations. If things turn out better than expected celebrate. Currently, my crystal ball is cloudy.
I agree. I think the only answer is to save more, which is tough when you've got kids, a mortgage, and are already working two jobs, as many people are. I've been reading that cities with lower housing costs are becoming more and more popular, which makes a lot of sense.
We already know that one's savings rate is the most important factor in accumulating wealth.

Who cares if doing so is tough when you add kids, a mortgage, and deriving your income from diverse sources (multiple jobs), etc... ?

Jonathan Clements nails it in one of his September articles...

https://humbledollar.com/2019/09/show-me-the-money/

That brings us to a perverse conclusion—one I’m almost reluctant to mention: Because savings are so crucial, and because they’re the key driver of your ultimate nest egg, how you invest is somewhat less important.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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gmaynardkrebs
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Fri Oct 18, 2019 7:59 am

CyclingDuo wrote:
Fri Oct 18, 2019 7:44 am
gmaynardkrebs wrote:
Tue Oct 15, 2019 8:56 am
dharrythomas wrote:
Tue Oct 15, 2019 8:38 am
If you don’t like what John Bogle and the CAPE are telling you, Vanguard is projecting nominal returns of 3.5-5.5% for US stocks over the next ten years. I’ve been wrong for too long about the level of interest rates to take what I think about the future too seriously.

What history generally tells us is that when prices are higher, returns going forward are lower either from a bear market or stagnation.

For those of us putting money in from our paycheck, a little at a time, it is hard to action. What it does drive is planning numbers. How much do I need to save? When can I retire? What is the SWR? All are heavily dependent on a number that is a SWAG.

Flexibility and resilience in the face of an unknowable future are critical. One key to satisfaction in life is low expectations. If things turn out better than expected celebrate. Currently, my crystal ball is cloudy.
I agree. I think the only answer is to save more, which is tough when you've got kids, a mortgage, and are already working two jobs, as many people are. I've been reading that cities with lower housing costs are becoming more and more popular, which makes a lot of sense.
We already know that one's savings rate is the most important factor in accumulating wealth.

Who cares if doing so is tough when you add kids, a mortgage, and deriving your income from diverse sources (multiple jobs), etc... ?

Jonathan Clements nails it in one of his September articles...

https://humbledollar.com/2019/09/show-me-the-money/

That brings us to a perverse conclusion—one I’m almost reluctant to mention: Because savings are so crucial, and because they’re the key driver of your ultimate nest egg, how you invest is somewhat less important.
Like you, my first reaction would be "who cares," but since people who do save are eventually going to be on the hook for those who don't, it's a problem for me too.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by CyclingDuo » Fri Oct 18, 2019 10:23 am

gmaynardkrebs wrote:
Fri Oct 18, 2019 7:59 am
CyclingDuo wrote:
Fri Oct 18, 2019 7:44 am
gmaynardkrebs wrote:
Tue Oct 15, 2019 8:56 am
dharrythomas wrote:
Tue Oct 15, 2019 8:38 am
If you don’t like what John Bogle and the CAPE are telling you, Vanguard is projecting nominal returns of 3.5-5.5% for US stocks over the next ten years. I’ve been wrong for too long about the level of interest rates to take what I think about the future too seriously.

What history generally tells us is that when prices are higher, returns going forward are lower either from a bear market or stagnation.

For those of us putting money in from our paycheck, a little at a time, it is hard to action. What it does drive is planning numbers. How much do I need to save? When can I retire? What is the SWR? All are heavily dependent on a number that is a SWAG.

Flexibility and resilience in the face of an unknowable future are critical. One key to satisfaction in life is low expectations. If things turn out better than expected celebrate. Currently, my crystal ball is cloudy.
I agree. I think the only answer is to save more, which is tough when you've got kids, a mortgage, and are already working two jobs, as many people are. I've been reading that cities with lower housing costs are becoming more and more popular, which makes a lot of sense.
We already know that one's savings rate is the most important factor in accumulating wealth.

Who cares if doing so is tough when you add kids, a mortgage, and deriving your income from diverse sources (multiple jobs), etc... ?

Jonathan Clements nails it in one of his September articles...

https://humbledollar.com/2019/09/show-me-the-money/

That brings us to a perverse conclusion—one I’m almost reluctant to mention: Because savings are so crucial, and because they’re the key driver of your ultimate nest egg, how you invest is somewhat less important.
Like you, my first reaction would be "who cares," but since people who do save are eventually going to be on the hook for those who don't, it's a problem for me too.
What I meant - although I didn't explicitly point it out - was that no matter the circumstance, saving is a difficult task regardless of cash flow in a household. In other words, nobody ever said it was going to be easy regardless of one's household cash flow of income and expenses. So "who cares" that it is tough? Increasing one's income and saving more is a part of adulting. I'm on the tough guy side of the fence when it comes to anyone belly aching about not being able to set aside a portion of their income for savings.

Fortunately, the time period one has children in the house with any increased expenses associated with having children is only a portion of one's entire working career. Financial education could be improved in the US, but it is getting better - at least in terms of the amount of information being available about how to live within a budget and save. Too bad it isn't widely taught in the 6th grade and beyond like it should be, but the information is out there to learn and change one's habits.

I agree that after paying oneself first in the form of automatic savings from paycheck(s), living on the remaining income is a difficult concept for many to grasp and fulfill. How do you think, or in what ways do you think that we who do save are going to be on the hook for those who can't grasp the basic concept of saving?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Fri Oct 18, 2019 11:26 am

CyclingDuo wrote:
Fri Oct 18, 2019 10:23 am
How do you think, or in what ways do you think that we who do save are going to be on the hook for those who can't grasp the basic concept of saving?
(1) higher taxes (2) means testing; (3) unfavorable changes to 401K/IRA distribution rules for those with above average balances. Recent changes to employer plans to encourage more savings (eg., default participation) are a step in the right direction, but we need more such incentives to head off 1, 2. 3, above.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by CyclingDuo » Fri Oct 18, 2019 1:34 pm

gmaynardkrebs wrote:
Fri Oct 18, 2019 11:26 am
CyclingDuo wrote:
Fri Oct 18, 2019 10:23 am
How do you think, or in what ways do you think that we who do save are going to be on the hook for those who can't grasp the basic concept of saving?
(1) higher taxes (2) means testing; (3) unfavorable changes to 401K/IRA distribution rules for those with above average balances. Recent changes to employer plans to encourage more savings (eg., default participation) are a step in the right direction, but we need more such incentives to head off 1, 2. 3, above.
Of course, those points are all conjecture at this point and non-actionable.

What is actionable includes participating in discussions with family members, friends, colleagues, neighbors, congregants, etc... with a keen focus on topics such as living within one's means, saving and investing for the future as well as retirement.

We already teach that to college students in my department at one of my jobs, including to all of our education majors who are heading out into a career of teaching. We cover subjects focusing on their benefits, saving and investing, student loan debt servicing, and living within their means. The more financial education we can provide as parents, teachers, leaders, etc... to those we interact with, the better at addressing many root problems provides help to those who need it. The days of it all being too taboo to talk about need to be in everyone's rearview mirror. Bogleheads is one place of many that does a nice job of breaking down a lot of the former taboo topic discussions.

I was pleased that a new class is being offered in another department starting next Spring for upperclass students at a college where I teach...

ECON 190: Financial Adulting. This course will provide practical financial knowledge and tools to assist students in making sound financial decisions for their future. Topics such as budgets, credit management, risk management, retirement planning, investments, taxes and more will be covered. In order to pass this course students must not have more than 2 unexcused absences and must meet minimum requirements for the end-of-the semester reflection paper. One-credit, pass/fail. Must be junior standing to register.

Department of Business Administration and Economics


Baby steps to turn the tide around using the education system (we'd vote for a mandatory class or two in public schools as well as again in college to prepare graduates for financial adulting) could be beneficial for our nation.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by TomCat96 » Fri Oct 18, 2019 2:23 pm

I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by lazyday » Fri Oct 18, 2019 2:56 pm

TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
That might work when TIPS have a higher expected return than stocks.

A simple example: When 30 year TIPS yield 50 basis points more than 1/CAPE, sell all stocks and move to 30 year TIPS. When 1/CAPE is 50 basis points higher than 30y TIPS yield, move back into stocks.

I haven’t backtested this, but if you were a US only investor, somewhere around the turn of the century you would have been out of stocks for a while.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Fri Oct 18, 2019 6:47 pm

TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
Absolutely. All it takes is extraordinary good luck. Otherwise, no.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by marcopolo » Fri Oct 18, 2019 9:14 pm

CyclingDuo wrote:
Fri Oct 18, 2019 10:23 am

What I meant - although I didn't explicitly point it out - was that no matter the circumstance, saving is a difficult task regardless of cash flow in a household. In other words, nobody ever said it was going to be easy regardless of one's household cash flow of income and expenses. So "who cares" that it is tough? Increasing one's income and saving more is a part of adulting. I'm on the tough guy side of the fence when it comes to anyone belly aching about not being able to set aside a portion of their income for savings.
Someone cynical might say the same thing about preparing for periods of job loss, especially in their 50s.
Everyone has their blind spots. I try not to be so judgemental about it.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by marcopolo » Fri Oct 18, 2019 9:20 pm

gmaynardkrebs wrote:
Fri Oct 18, 2019 6:47 pm
TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
Absolutely. All it takes is extraordinary good luck. Otherwise, no.
Surprised to see you dismissing this idea so cavalierly. You seem to do a lot of hang-wringing about current valuations (based on CAPE among other things), and the dismal long term returns that you believe this indicates. If you really believe that to be the case (and our previous discussions indicate you do), it seem like not a completely crazy idea to rotate out of markets when CAPE is "too high" and get back in when market is "undervalued".
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Fri Oct 18, 2019 9:30 pm

marcopolo wrote:
Fri Oct 18, 2019 9:20 pm
gmaynardkrebs wrote:
Fri Oct 18, 2019 6:47 pm
TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
Absolutely. All it takes is extraordinary good luck. Otherwise, no.
Surprised to see you dismissing this idea so cavalierly. You seem to do a lot of hang-wringing about current valuations (based on CAPE among other things), and the dismal long term returns that you believe this indicates. If you really believe that to be the case (and our previous discussions indicate you do), it seem like not a completely crazy idea to rotate out of markets when CAPE is "too high" and get back in when market is "undervalued".
CAPE 10 is not at all useful a short term market timing tool, which what I think the poster had in mind.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by marcopolo » Fri Oct 18, 2019 10:11 pm

gmaynardkrebs wrote:
Fri Oct 18, 2019 9:30 pm
marcopolo wrote:
Fri Oct 18, 2019 9:20 pm
gmaynardkrebs wrote:
Fri Oct 18, 2019 6:47 pm
TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
Absolutely. All it takes is extraordinary good luck. Otherwise, no.
Surprised to see you dismissing this idea so cavalierly. You seem to do a lot of hang-wringing about current valuations (based on CAPE among other things), and the dismal long term returns that you believe this indicates. If you really believe that to be the case (and our previous discussions indicate you do), it seem like not a completely crazy idea to rotate out of markets when CAPE is "too high" and get back in when market is "undervalued".
CAPE 10 is not at all useful a short term market timing tool, which what I think the poster had in mind.
Fair point.

Can it be exploited over longer investment horizons?
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by HomerJ » Fri Oct 18, 2019 11:01 pm

TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
First off, I'm against CAPE10, not for it.

CAPE10 has been "high" since 1992 (with a brief dip to "normal", but not "cheap" in 2009).

If you were out of the market when CAPE10 was high, you would have been out of the market from 1992-2009, and then back in the market from 2009-2011 or so, and then back out of the market again from 2011 to today.

Now I can't answer your question... Maybe getting out of the market when CAPE10 is "high" will work going forward from today... Who knows?

But it absolutely has FAILED since it was derived in 1988.

I cannot understand why anyone is a CAPE10 advocate... It would have worked in 1928 and 1965, I guess.... but nobody knew about CAPE10 in 1928 and 1965... so CAPE10 has never worked in the real world with real investors. Anyone following CAPE10 since 1988 missed the last two huge bull markets.

But yeah, maybe it will work going forward, sure... Give it try... Go 100% bonds, and wait for valuations to be "low" again.
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by alex_686 » Sat Oct 19, 2019 7:44 am

marcopolo wrote:
Fri Oct 18, 2019 10:11 pm
Can it be exploited over longer investment horizons?
No. P/E ratios of any kind are relative metrics. There is no theory or historical reasoning to think so. P/E ratios package expected returns, risk, and the time value of money into a single number. During any particular secular period these numbers will mean revert. But then economic structures will change and these numbers will shift.

To generate over/under signals you need to compare P/E values to another number. “The Fed Model” is popular, but I prefer yhe Yardin model.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by junior » Sat Oct 19, 2019 9:00 am

TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
Take a look at William Bernstein's Rational Expectations book. If I recall correctly he recommends shifting from U. S. to international based on CAPE IF there's a difference in valuations but not stock to bonds.

The problem with this is as all the "Why have international stock" threads here show most investors can't handle this sort of thing, even if it works.

They'll compare recent performance to a benchmark of 100% U. S. stock, decide they made a mistake in shifting to international , and sell low and buy high back into U. S.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by gmaynardkrebs » Sat Oct 19, 2019 9:07 am

HomerJ wrote:
Fri Oct 18, 2019 11:01 pm
TomCat96 wrote:
Fri Oct 18, 2019 2:23 pm
I have a question for HomerJ, and those advocating for CAPE10.

So right now, I'm at 100% stocks and am holding for the long term. It's nice, but it's alot of heartache sometimes and alot of sitting around doing nothing.

Can I get a better return by getting out of the market or moving into bonds when CAPE is too high than leaving it in there passively?
If CAPE10 is a good valuation metric, I would like get out of the market for now, and then get back in when CAPE10 valuation says that the stock market is undervalued.

Can this strategy work?
First off, I'm against CAPE10, not for it.

CAPE10 has been "high" since 1992 (with a brief dip to "normal", but not "cheap" in 2009).

If you were out of the market when CAPE10 was high, you would have been out of the market from 1992-2009, and then back in the market from 2009-2011 or so, and then back out of the market again from 2011 to today.

Now I can't answer your question... Maybe getting out of the market when CAPE10 is "high" will work going forward from today... Who knows?

But it absolutely has FAILED since it was derived in 1988.

I cannot understand why anyone is a CAPE10 advocate... It would have worked in 1928 and 1965, I guess.... but nobody knew about CAPE10 in 1928 and 1965... so CAPE10 has never worked in the real world with real investors. Anyone following CAPE10 since 1988 missed the last two huge bull markets.

But yeah, maybe it will work going forward, sure... Give it try... Go 100% bonds, and wait for valuations to be "low" again.
Correct me if I'm wrong, but I think your view is that all valuation measures, of which CAPE10 is but one, are useless.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by JoMoney » Sat Oct 19, 2019 10:45 am

gmaynardkrebs wrote:
Sat Oct 19, 2019 9:07 am
...
Correct me if I'm wrong, but I think your view is that all valuation measures, of which CAPE10 is but one, are useless.
Not useless, they make for great discussion fodder. :D
Trying to lump "all" valuation measures, would seem to include ones we don't know about, and we don't know what we don't know.
The way CAPE10 is frequently discussed around here seems more like market-timing than valuation though. What is the expected future value CAPE10 is suggesting, and how good has it been at predicting? Whatever it's predicting, it might be better at it than some others, but still worse than a coin flips chance.
Most popular metrics have little or no correlation with future stock returns
https://web.archive.org/web/20150406013 ... f/s338.pdf
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by alex_686 » Sat Oct 19, 2019 11:16 am

JoMoney wrote:
Sat Oct 19, 2019 10:45 am
The way CAPE10 is frequently discussed around here seems more like market-timing than valuation though. What is the expected future value CAPE10 is suggesting, and how good has it been at predicting? Whatever it's predicting, it might be better at it than some others, but still worse than a coin flips chance.
While I agree with you that CAPE10 is not a market timing tool, I will strongly disagree that it worse than a coin flip

The CAPE10 we bat around here on Bogleheads is highly mechanical and simplistic. It assumes that accounting standards are static. You can update the model to take into consideration changes in how earnings are reported to reflect these changes. These get you up to over 60%. However these models involve subjective judgements and are evolviing, which means that they are propariatairy, and thus hard to discuss on this forum.

Next, it does give you 40% power. IIRC, height gives you about a 40% power of explanation in effectiveness of forwards in collelge basketball. Does it explain skill, luck, etc.? No. Can you use it as the sole number in evaluating a prospect? No. Can you ignore it, calling it no better than a flip of a coin? No - height is a important casual driver in success.

Same with CAPE10. Long term earning trends have to be part of any predictive model for long term stock returns.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by willthrill81 » Sat Oct 19, 2019 11:17 am

alex_686 wrote:
Sat Oct 19, 2019 11:16 am
JoMoney wrote:
Sat Oct 19, 2019 10:45 am
The way CAPE10 is frequently discussed around here seems more like market-timing than valuation though. What is the expected future value CAPE10 is suggesting, and how good has it been at predicting? Whatever it's predicting, it might be better at it than some others, but still worse than a coin flips chance.
While I agree with you that CAPE10 is not a market timing tool, I will strongly disagree that it worse than a coin flip

The CAPE10 we bat around here on Bogleheads is highly mechanical and simplistic. It assumes that accounting standards are static. You can update the model to take into consideration changes in how earnings are reported to reflect these changes. These get you up to over 60%. However these models involve subjective judgements and are evolviing, which means that they are propariatairy, and thus hard to discuss on this forum.

Next, it does give you 40% power. IIRC, height gives you about a 40% power of explanation in effectiveness of forwards in collelge basketball. Does it explain skill, luck, etc.? No. Can you use it as the sole number in evaluating a prospect? No. Can you ignore it, calling it no better than a flip of a coin? No - height is a important casual driver in success.

Same with CAPE10. Long term earning trends have to be part of any predictive model for long term stock returns.
But the real question is whether CAPE10 has enough explanatory power to be actionable.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by alex_686 » Sat Oct 19, 2019 11:32 am

willthrill81 wrote:
Sat Oct 19, 2019 11:17 am
But the real question is whether CAPE10 has enough explanatory power to be actionable.
I would argue yes. To build a Asset Allocation one must have market expectations. How do you make them? Hopefully something better than a vague intuition.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by JoMoney » Sat Oct 19, 2019 11:49 am

willthrill81 wrote:
Sat Oct 19, 2019 11:17 am
...
But the real question is whether CAPE10 has enough explanatory power to be actionable.
Not any more so than someone that just expected long-term average returns, something like 6-7% real, which would also explain about 40% of the returns over a 10 year period ... which a monte-carlo simulation would peg between -1 and 13% (real)
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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by willthrill81 » Sat Oct 19, 2019 12:05 pm

alex_686 wrote:
Sat Oct 19, 2019 11:32 am
To build a Asset Allocation one must have market expectations.
If by 'market expectations' you mean expected returns, that's false. Many here have constructed their AA on the basis of it being as stock heavy as possible while assuming that they would not panic sell if stocks fell in value by 50%. That has nothing to do with expected return.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by CyclingDuo » Sat Oct 19, 2019 1:02 pm

marcopolo wrote:
Fri Oct 18, 2019 9:14 pm
CyclingDuo wrote:
Fri Oct 18, 2019 10:23 am

What I meant - although I didn't explicitly point it out - was that no matter the circumstance, saving is a difficult task regardless of cash flow in a household. In other words, nobody ever said it was going to be easy regardless of one's household cash flow of income and expenses. So "who cares" that it is tough? Increasing one's income and saving more is a part of adulting. I'm on the tough guy side of the fence when it comes to anyone belly aching about not being able to set aside a portion of their income for savings.
Someone cynical might say the same thing about preparing for periods of job loss, especially in their 50s.
Everyone has their blind spots. I try not to be so judgemental about it.
Point taken. Although I never mentioned our specific numbers in terms of the amount of savings we have in the Losing a job in your 50's thread I started - we had prepared well over the decades of working for the 30+ years leading up to the job loss (without even considering additional expense cuts we have instituted since then over the past 20 months as a precaution or the other two legs of our three legged stool retirement income that we will have coming from the pension leg and SS leg).

I would expect on a case by case basis, if we uncovered a household's cash flow that is not saving like they should in their 20's, 30's, 40's (or beyond) we would find plenty of simple ways to turn it around based on the usual suspects all falling under the traps of what many think is "normal" (too much debt via consumer credit card debt, auto loans, student loans, spending beyond their means, divorce, mortgage, child care expenses, and not producing enough income to support their needs and wants). Having seen plenty of this myself in siblings, colleagues, neighbors, friends, etc.... most have fallen into many of the similar, usual traps. At least from this point in my life, it is perhaps easier to be on the tough guy side of the fence as it is easy to see the traps many have fallen into that is preventing them from having the discipline to save a portion of their income. I would like to see continued education - and more of it - become available for the masses to avoid falling into the usual traps.

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Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by marcopolo » Sat Oct 19, 2019 1:11 pm

CyclingDuo wrote:
Sat Oct 19, 2019 1:02 pm
marcopolo wrote:
Fri Oct 18, 2019 9:14 pm
CyclingDuo wrote:
Fri Oct 18, 2019 10:23 am

What I meant - although I didn't explicitly point it out - was that no matter the circumstance, saving is a difficult task regardless of cash flow in a household. In other words, nobody ever said it was going to be easy regardless of one's household cash flow of income and expenses. So "who cares" that it is tough? Increasing one's income and saving more is a part of adulting. I'm on the tough guy side of the fence when it comes to anyone belly aching about not being able to set aside a portion of their income for savings.
Someone cynical might say the same thing about preparing for periods of job loss, especially in their 50s.
Everyone has their blind spots. I try not to be so judgemental about it.
Point taken. Although I never mentioned our specific numbers in terms of the amount of savings we have in the Losing a job in your 50's thread I started - we had prepared well over the decades of working for the 30+ years leading up to the job loss (without even considering additional expense cuts we have instituted since then over the past 20 months as a precaution or the other two legs of our three legged stool retirement income that we will have coming from the pension leg and SS leg).

I would expect on a case by case basis, if we uncovered a household's cash flow that is not saving like they should in their 20's, 30's, 40's (or beyond) we would find plenty of simple ways to turn it around based on the usual suspects all falling under the traps of what many think is "normal" (too much debt via consumer credit card debt, auto loans, student loans, spending beyond their means, divorce, mortgage, child care expenses, and not producing enough income to support their needs and wants). Having seen plenty of this myself in siblings, colleagues, neighbors, friends, etc.... most have fallen into many of the similar, usual traps. At least from this point in my life, it is perhaps easier to be on the tough guy side of the fence as it is easy to see the traps many have fallen into that is preventing them from having the discipline to save a portion of their income. I would like to see continued education - and more of it - become available for the masses to avoid falling into the usual traps.

:sharebeer

I completely agree with you about the need for better financial education, and have seen many people fall into similar traps that you describe.

Not sure I see how saying "who cares" and calling it "belly aching" helps improve the situation in any way.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Uncorrelated
Posts: 105
Joined: Sun Oct 13, 2019 3:16 pm

Re: John Bogle’s formula says 1% real stock returns likely over next decade

Post by Uncorrelated » Mon Oct 21, 2019 3:18 am

JoMoney wrote:
Mon Oct 14, 2019 10:51 am
:confused :? Does anyone else see a paradox in the idea of a broad-market index investor believing that
(A) Can't better value individual companies securities better than the broad market
and at the same time
(B) Can better value ALL the individual companies securities lumped together

Eventually, like a broken clock, the CAPE metric will line up with a market decline... but I've been hearing people complain about how high it was for almost 10 years now, and it's worked out pretty well ignoring them. Nobody knows how far down the market might retrace in any future down-turn, but one thing that is certain, is the market participants in aggregate won't be able to beat themselves in a race to beat each other out and then back in hoping to garner something extra from their efforts. In the mean time, the people averaging in or rebalancing over time will have averaged in at the average price over that time period of ups and downs.
That doesn't sound like a contradiction to me. The powers that cause markets to be efficient (mostly high frequency trading and arbitrage) are poorly equipped to deal with a long-term varying risk premium. There is a lot of money to be made by exploiting inefficiencies in the short term, but the long term is more difficult.

That doesn't mean B is possible, just that A and B are unrelated.
willthrill81 wrote:
Sat Oct 19, 2019 11:17 am
But the real question is whether CAPE10 has enough explanatory power to be actionable.
According to this paper, earnings and dividend yield information offer insufficient explanatory power to beat the market on a month-to-month basis with an in-sample backtest: Forecasting the Equity Risk Premium: The Role of Technical Indicators (I read the 2013 revision)

In contrast, a combination of treasury bill information and technical indicators (moving average) beat the market by 4.12% per year after trading costs.

Earnings information is said to have more predictive over over longer time horizons, but there is insufficient evidence for that. I'd say CAPM market timers are most likely to shoot themselves in the foot.

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